Shanghai Lujiazui Finance & Trade Zone Development surged
more than 2 percent after its chairman and six executives bought
company shares. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech
Co. led gains among rare earth stocks after China National Radio
reported the country plans to shut down about a fifth of
industry production capacity. China Life Insurance Co. slid 1.9
percent after saying first-half net income fell.

“Sentiment towards Europe has improved,” said Wu Kan, a
Shanghai-based fund manager at Dazhong Insurance Co., which
oversees $285 million. “Previously, investors expected the
worst for Europe. With a little progress now, people are getting
a tad more optimistic.”

The Shanghai Composite has fallen 12 percent from this
year’s high on March 2 amid concern the economic slowdown is
deepening and Europe’s debt crisis is worsening.

China’s economic growth may slow to 4 percent to 5 percent
this year, according to Patrick Chovanec, an associate professor
at Tsinghua University.

Economic Slump

“I think we are going to see a deepening of this slowdown;
this slowdown is driven by the accumulation of bad debt that’s
dragging down investment,” he said on Bloomberg Television in
Hong Kong. “We’re looking at 4 to 5 percent growth right now
despite the official numbers.”

The economy grew 7.6 percent in the second quarter, the
slowest pace since 2009. The People’s Bank of China cut interest
rates twice since early June and lowered lenders’ reserve
requirement ratios three times starting in November as part of
the government’s efforts to spur credit growth and support the
economic expansion.

Merkel’s government backed the ECB’s bond-buying plan
announced last week, her deputy spokesman Georg Streiter said.
Spanish and Italian two-year notes climbed for a fourth day
yesterday amid speculation the ECB will buy the securities in an
attempt to calm euro-region turmoil.

Bad Sentiment

Shanghai Lujiazui Finance & Trade Zone surged 2.6 percent
to 11.65 yuan after its chairman and six executives bought a
combined 76,300 shares in the company.

The nation’s securities regulator, in the week following a
July 31 pledge by the Communist Party’s Politburo to continue
adjusting policies to ensure growth, has announced plans to
allow companies to buy back shares and use them to pay employees
in lieu of wages as well as cut trading fees for stocks. The
measures signal intensifying government efforts to bolster
equities.

China’s A-share market sentiment dropped to a record low in
July, Credit Suisse Group AG said, citing its own survey. The
Chinese Whispers A-share Market Sentiment Index was at 18 in
July, below the 50 benchmark, Credit Suisse said.

Traders are the most bearish on China’s currency in more
than three years, based on the spread between three- and 36-
month yuan forwards, as global companies cut back on investment
in the world’s second-biggest economy. The rising spread signals
traders expect the currency to be about 5 percent weaker against
the dollar in three years.

Rare Earth

Inner Mongolia Baotou gained 3 percent to 42.72 yuan. New
industry rules will apply to China’s 23 rare-earth mines and 99
smelters, according to China National Radio, which cited Jia
Yinsong, an official at the raw material division of the
Ministry of Industry and Information Technology. Rare-earth
smelting companies will be required to have annual capacity of
at least 2,000 metric tons, the ministry said in a statement.

Thirty-day volatility in the Shanghai Composite index was
at 14.6. About 7.2 billion shares changed hands in the gauge
yesterday, 5 percent lower than the average this year. The index
is valued at 9.6 times estimated profit, compared with the
three-year average of 14.6.

Profit Warnings

China Life retreated 1.9 percent to 18.51 yuan, the lowest
close since July 30. The biggest life insurer estimated first-
half net income slid by a “relatively large degree” from the
same period last year on lower investment returns and a decline
in asset value. Ping An Insurance Group, the second largest,
lost 1.5 percent to 43.92 yuan.